Sen. Clarence Lam and Del. Jared Solomon, co-chairs of the Joint Audit and Evaluation Committee, at a hearing Wednesday about an audit done on the University of Maryland Global Campus. Photo by William J. Ford.
Lawmakers grilled University of Maryland Global Campus officials Wednesday over the school’s use of no-bid contracts for university-spawned businesses and the effectiveness of $500 million in advertising contracts.
The hearing by the Joint Audit and Evaluation Committee comes on the heels of an August audit of UMGC by the Department of Legislative Services Office of Legislative Audits that also criticized the online university for its handling of payment checks and its tracking of students’ residency status.
But the audit – and much of Wednesday’s hearing – centered on the advertising contracts and on a University System of Maryland policy called the High Impact Economic Development Activities program. Under HIEDA, campuses in the system are allowed to give preferential treatment to businesses they spin off, under specific circumstances.
“I can only tell you that I have never seen a situation like this in state government in my 29-plus years with the state of Maryland, so it (HIEDA) was a clearly unique activity,” Legislative Auditor Brian S. Tanen told the committee at the outset of the more than two-hour hearing.
Sen. Clarence Lam (D-Anne Arundel and Howard), co-chair of the committee, said the audit showed that while Ventures, a company spun off from UMGC under HIEDA, had $215.3 million in revenues from fiscal years 2017 to 2022, $198.1 million of that amount came from the university.
“I wonder whether that actually meets the spirit of why we created these HIEDAs,” Lam said.
University System of Maryland Chancellor Jay A. Perman didn’t disagree with Lam’s analysis, but “I stand by the intent” of the program, that is intended to create businesses that help generate revenue and entrepreneurial activities.
“I think we never like to fail, but in trying to execute on the intent, I think there’s some issues that you raised that are totally valid,” Perman said.
Ventures was just one of the HIEDA companies cited in the audit. It said that UMGC in 2015 spun off its Office of Analytics to create HelioCampus, providing $10 million in startup funding for the company that was to assist universities with analytics.
The following year, the global campus created Ventures, a tax-exempt holding company for UMGC businesses that the university seeded with $15 million. A year later in 2017, UMGC spun off its IT office into AccelerEd, a subsidiary of Ventures.
The audit noted of the $198.1 million in business that UMGC gave to Ventures, $184 million of those service agreements were made without competitive bids and with little oversight afterward. While HIEDA policy doesn’t require institutions to seek competitive bids, the audit states “the law does not mandate exclusive use of these entities.”
The policy sets six criteria for colleges and universities to establish a HIEDA-related business, including the production of at least $1 million in annual gross revenue, formation of new companies to register or incorporate in the state, or an academic program that meets workforce demand in “a documented labor shortage field.”
UMGC President Gregory W. Fowler noted that Ventures has provided $1.6 million in scholarships for 950 Marylanders in fiscal year 2024 and another $1.4 planned for this fiscal year.
Fowler also addressed the criticism of the school’s advertising program. The Board of Public Works in 2019 approved $500 million split between two, six-year advertising contracts. University officials said Wednesday that about $317 million has been spent over the past five years.
By comparison, Fowler said, two of the school’s national competitors for online students – Southern New Hampshire and Western Governors universities – spent $144 million and $127 million, respectively, in 2019 alone.
“Since joining the University in 2021, I’ve approached the objective with the understanding that we at UMGC are not called to replace or supersede the important work conducted by our fellow residential institutions, but rather to expand that work to new, often underserved populations … as we learn new things ourselves,” Fowler said.
Despite the advertising contract, the university announced layoffs in 2022 of several dozen employees after a decline in undergraduate enrollment in fall 2021. School leaders at the time blamed the pandemic as a major cause for the enrollment decline.
Del. David Moon (D-Montgomery), a member of the committee, said a “half-billion dollars” in advertising should have generated more money in scholarships.
Meanwhile, global campus officials said Attain Partners will conduct a study for UMGC that will assess the current HIEDA model, among other things. The report is due next spring, but Lam did not appear to be confident in the value of that report.
“Why should we have confidence in the recommendations” from the report, Lam asked.
“We’ve gone through the procurement process … and to make sure we bring in someone with the ability to say this is not biased one way or the other,” Fowler said.